Interim Results
Sondex PLC
04 November 2004
Sondex plc
('Sondex' or the 'Company')
Interim Results for the six months ended 31 August 2004 and acquisition of WTPL
technology*
Sondex, the oilfield technology company, announces its interim results for the
six months ended 31 August 2004 which has been a period of significant expansion
accompanied by increased investment in sales, management and product
development.
Financial Highlights
• Turnover (including acquisitions) increased by 32 per cent to
£9.7million (2003 - £7.4million)
• R&D expenditure increased by 36 per cent to £1.3million (2003 -
£0.9million)
• Loss after tax reduced to £1.1million (2003: £3.2million)
• Dividend per share increased by 8 per cent to 0.65p
Operational highlights
• Wireline order intake up 31 per cent for pre-acquisition products**
• Geolink successfully integrated following acquisition in June
• CSS sales 75 per cent ahead of previous year
• Increased investment in platform for future growth
• Further technology / intellectual property agreements
• Strong current order book
* See separate announcement
** On a constant exchange rate basis
Iain Paterson, Chairman of Sondex commented:
"The period under review has been one of unrivalled activity for the group. We
have completed and successfully integrated our most substantial acquisition to
date whilst further investing in sales, management and R&D.
Sondex's strong order book, new products and continuing growth, combined with
the current industry conditions, give us confidence of an excellent second half
and a successful outcome for the current financial year."
For further information, please contact
Sondex Tel: 0118 932 6755
Martin Perry (Chief Executive)
College Hill Tel: 020 7457 2020
Nick Elwes
Ben Brewerton
Interim Statement
Introduction
The six months to 31 August 2004 has been both an eventful and productive period
for Sondex. The business has been expanded in geographical and operational
terms whilst new products have been successfully introduced into an oil sector
facing ever more challenging reserve demands. We are particularly pleased to
report that the order book (excluding acquisitions) at the end of August was
some 82 per cent higher than at the corresponding point last year and it has
continued to increase in the past two months.
Results
In the six months to 31 August 2004, turnover increased by 32 per cent to £9.7
million, compared to £7.4 million for the six months to 31 August 2003.
Research and development expenditure in the period was increased by 36 per cent
to £1.3 million and administrative expenses were up by 66 per cent to £6 million
on increased investment in global sales, marketing, support and group
infrastructure. These effects led to an operating loss of £0.6 million for the
period (first half 2003: profit of £0.6 million). The loss after taxation was
reduced by 67 per cent to £1.1 million from £3.2 million. First half loss per
share was 2.5 pence compared with a loss of 11 pence per share as reported for
the six months to 31 August 2003.
Interim Dividend
The Board has declared an interim dividend of 0.65 pence per ordinary share (0.6
pence in the first half of the previous year) to reflect the group's growth
prospects. The dividend will be payable on 15 December 2004 to those
shareholders on the register of members at the close of business on the 12
November 2004.
Operations
The group remains firmly on course in terms of the development of the business.
Sales, excluding acquisitions, in the period and based on a constant exchange
rate, grew by 21 per cent in the first half while order intake was up some 31
per cent compared with the same period last year.
Geolink, specialising in equipment for Measurement While Drilling (MWD) and
Logging While Drilling (LWD) markets, was acquired in June 2004. The move has
provided Sondex with a broadened range of downhole equipment with growth
opportunities in the appraisal and in-fill drilling sectors. The acquisition is
already bringing benefits to the group through cross selling opportunities.
Investment is now being made in sales and marketing as well as research and
development in Geolink which will continue to operate as a distinct division
within the group. A number of joint projects between Geolink and the Wireline
division have also been initiated. We are confident that these efforts will
bring early rewards. We are especially pleased to report that management and
staff of Geolink have remained committed to the company throughout the
transition period.
We are also pleased to report that Computer Sonics Systems Inc ("CSS"), acquired
in December 2003, is performing ahead of expectation. Its sales - excluding
internal transactions - were £2.1m, a 75 per cent increase on the corresponding
period last year. The Calgary-based company has now been fully integrated into
the Sondex Wireline division; developing, manufacturing and marketing group
products as well as maintaining its position as an acoustic tools centre of
excellence.
Exports now account for 94 per cent of the Sondex group sales. Significant new
customers have been added during the period in Venezuela, Kuwait, Russia, and
China. Iran continues to demonstrate great potential, with Export Credit
Guarantee Department financing arrangements being put in place for significant
consolidated sales in the future. Steps have been taken to ensure that the
increased international business is reinforced with full marketing and support
presence in key regions. In March the group opened a new office and maintenance
facility in Beijing, China, to add to the group's existing international
operations in the USA, Canada, South America, the Middle East, and Australia.
The group has also established a presence in Russia in order to support and
develop recent business successes. The importance of this region in terms of oil
and gas supplies will reflect in an increased focus from the group in the coming
period.
Our strong research and development programme has enabled us to introduce a
number of new products that are now having a material impact on the business.
These products include the Magnetic Thickness Tool (MTT), a high pressure/high
temperature logging string ("Hades") and the Downhole Electric Cutting Tool.
Since its launch earlier this year the MTT tool has been used successfully in
over 56 wells in Canada, the US, and South America. The Hades logging string has
been used effectively in some of the most challenging conditions in wells in the
North Sea, the Gulf of Mexico and Iran in more than 60 jobs to date. In
addition, the downhole electric cutter has been successfully deployed in casing
and tubing of varying sizes in Alaska, Saudi Arabia, the North Sea and Algeria.
We have announced today the acquisition of the technology and patents for Well
Test Production Logging, a project currently co-sponsored by a major integrated
oil company and an international oil services group. This is a novel methodology
for measuring, from a producing well, the production capability of an oil or gas
reservoir. The data gathered will ultimately allow oil and gas companies to
manage their reserves more cost effectively and increase the overall reservoir
recovery. The technology is a logical extension to the existing Sondex wireline
products.
As reported in August, Sondex signed an agreement to develop a downhole
telemetry tool exclusively for Halliburton. The agreement calls for the group to
develop, supply and license its technology for use with Halliburton's family of
pulsed neutron tools. This development is proceeding well and it is expected
that the first prototype tool will be available in the first quarter of 2005.
During this period the group also released the news that it had forged an
alliance with Tucker Energy to develop jointly an advanced acoustic tool for use
in new and existing wells. This development work is being completed primarily at
Sondex CSS's facilities in Calgary, Canada. Prototype units are scheduled for
delivery this winter.
Significant organic and acquisitive expansion, such as that experienced in the
six months to 31 August 2004, brings with it special challenges and the Board is
grateful for the way that all staff - now numbering some 250 worldwide - have
demonstrated their loyalty, commitment and flexibility.
Management
The management organisation has been strengthened to reflect the new group
structure with the recent appointment of Peter Collins as Managing Director of
Sondex Wireline and the confirmation of Alisdair Macrae as Managing Director of
Geolink. Each are responsible for their respective profit and loss accounts.
Regional managers and department heads are represented on a group executive
board. They report to the main Board of Directors.
The international sales and marketing organisation and group accounting
functions have also been strengthened with the appointment of an additional 19
people in the period under review.
Investment in the international infrastructure has increased significantly with
strengthening of the Houston, Dubai and Beijing offices. There are now field
qualified engineers located in all the offices providing advice and training to
customers as well as diagnosis of maintenance or repair requirements.
Financial Commentary
The most significant financial event of the first half of the 2004-05 financial
year was the acquisition of Geolink International on 30 June 2004 for a headline
price of £31.5 million in cash and new Sondex shares. The acquisition was
financed by a new £13 million debt facility, the issue of new Sondex shares to
the vendors in the amount of £4.1 million and the placing and open offer of new
Sondex shares. In the event, 13,118,029 new ordinary shares were issued at 160
pence per share and acquisition and financing costs of £3 million were incurred.
The subsequent completion accounts exercise resulted in a price reduction of
£1.2 million from the headline price.
Profit and loss account
The Group turnover increased by 32 per cent compared with the same period last
year and excluding the effect of the Geolink acquisition the increase was 12 per
cent. Three effects, however, constrained the core revenue growth during this
period: the average US Dollar exchange rate, significant sales which were
dependent on letters of credit before shipment could occur and the timing of
completion of the Geolink acquisition.
The first effect was that the average US Dollar exchange rate during the period
was over $1.8 to the pound and this resulted in a revenue reduction of £696,000
compared with using the average exchange rate in the previous period. A Dollar
price list increase made during late spring has now taken full effect and in the
second half we expect to return to the gross margins that Sondex has
historically enjoyed.
The second effect resulted from three orders (part of a five order supply
contract) totalling $2.7 million (£1.5 million) which were due for shipment to
National Iranian Drilling Company (a wholly owned subsidiary of the national oil
company in Iran) at the end of the period being reported on. It is the group's
accounting policy that revenue is recognised upon product shipment. This
contract has had a significant impact on the results for the period, in that the
product build was completed by the period end but essential letters of credit
were still being finalised at that date and shipment had not occurred.
Recognition of the revenue on this contract has accordingly been deferred until
the letters of credit are complete and shipping can take place in the second
half of the year. The emergence of orders of this size from customers as
significant as this is an important new trend which emphasises the Group's
global reach and market presence.
Thirdly, the Geolink acquisition was completed on 30 June 2004 and accordingly
these results include only two months' trading from Geolink. The second half of
this financial year will benefit from a full six months' contribution from
Geolink. The Geolink order book continues to show solid growth with the
predicted benefits of the Sondex Group network of offices and market contacts
already producing sales orders and quotation requests.
Historically, the first half of the financial year has represented about 40 per
cent of the annual revenue total; the result of the factors described above is
expected to make this first half to full year ratio more pronounced this year.
The administrative expenses increased by 66 per cent compared with the six
months ended 31 August 2003. This arose because of higher investment in
research and development, sales and customer support and group infrastructure.
We increased investment in research and development by some 36 per cent to
represent a little over 13 per cent of revenue. Sales and customer support
functions have been increased to now represent 12 per cent of revenue, compared
with 7 per cent in the year ended 28 February 2004. Investment in management
information systems and health and safety is expected to represent about 3 per
cent of the group's turnover by the year end (financial year 2003/04 - 2 per
cent). The group's central costs which are shown in the results of the ongoing
business, have increased since the same period last year because of overheads
associated with Sondex's status as a public company and investment in resources
to assist acquisitions and the development of group companies. Overall it is
anticipated that this investment will contribute to greater revenue and
opportunities without a diminution in full year operating profit margins.
After tax the group reported a loss of £1.1 million compared with a loss of £3.2
million in the corresponding period the previous year. The half year loss per
share was 2.5p, an improvement on the same period last year (loss of 11.0p per
share).
Balance sheet
The level of trade debtors at the period end, in common with 28 February 2004,
reflected a significant amount of last quarter shipments. Additionally, the
consolidation of the Geolink balance sheet increases the size of the debtors'
balance, but taking account of the short post acquisition period the overall
debtors balance has increased roughly in proportion to turnover from the year
end. Since the period end trade debt has reduced by approximately 10 per cent,
as expected.
The group long term bank debt was increased to part fund the acquisition of the
Geolink and at 31 August 2004 was recorded at a value of £24 million. These
loan amounts are held as US Dollar denominated debt and are serviced from US
Dollar denominated sales which made up 94 per cent of the turnover in the
period. The gearing ratio at the period end was 51 per cent (at 31 August
2003 - 72 per cent).
Outlook
In the near term, we expect the strength of the order book combined with the
benefits of integrating CSS and Geolink to underpin growth. In the longer term,
we believe the Group will benefit from the buoyant oil industry environment.
Market demand is expected to result in strong investment in mature oil and gas
field development for the foreseeable future. Our business is performing well
and the Board is confident that our sophisticated downhole technology has an
important part to play in the upstream oil and gas industry's quest for
prolonged production. We remain confident of a successful outcome for the
current financial year.
Iain Paterson Martin Perry
Chairman Chief Executive
4 November 2004
Group Profit and Loss Account
Consolidated Accounts for the six months to 31 August 2004
Unaudited Unaudited Audited
Half Year Half Year Year Ended
31-Aug-04 31-Aug-03 28-Feb-04
Notes £'000 £'000 £'000
Turnover - continuing operations
Ongoing 8,223 7,374 16,868
Acquisitions 1,488 - 656
Group Turnover 2 9,711 7,374 17,524
Cost of Sales (4,339) (3,172) (7,002)
Gross Profit 5,372 4,202 10,522
Administrative Expenses (6,013) (3,626) (7,056)
Operating (loss)/profit - continuing operations
Ongoing (1,012) 576 3,347
Acquisitions 371 - 119
Group operating (loss)/profit (641) 576 3,466
Operating profit before amortisation, R&D and flotation 1,596 2,704 7,303
costs
Research and Development Costs (1,264) (930) (2,009)
Amortisation of goodwill and intangible assets (973) (715) (1,231)
Cost of Flotation - (483)
(597)
Operating (loss)/profit (641) 576 3,466
Interest Payable and Similar Charges:
Net Bank Interest (518) (204) (857)
Loan and Other Interest - (829) (291)
Redemption Premia - (3,184) (3,184)
Amortisation of bank fees and exchange differences (184) (250) 1,789
Loss on ordinary Activities Before Taxation (1,343) (3,891) (923)
Tax on loss on ordinary activities 3 280 660 (774)
Loss for the period (1,063) (3,231) 149
Dividend 4 (358) (233) (708)
Retained Earnings (1,421) (3,464) (559)
Basic and diluted (Loss)/earnings per share 5 (2.5)p (11.0)p 0.4p
Group Balance Sheet
Consolidated Accounts as at 31 August 2004
Unaudited Unaudited Audited
Half Year Half Year Year
Ended
31-Aug-04 31-Aug-03 28-Feb-04
£'000 £'000 £'000
Fixed Assets
Intangible Assets 49,064 20,921 21,653
Tangible Assets 5,034 1,494 1,843
Investments 181 162 204
54,279 22,577 23,700
Current Assets
Stock 6,834 3,070 4,197
Debtors 14,518 7,215 9,988
Cash at Bank and in hand 2,638 4,493 2,044
23,990 14,778 16,229
Creditors: Amounts falling Due within one year (8,751) (3,530) (5,384)
Net Current Assets 15,239 11,248 10,845
Total assets less current liabilities 69,518 33,825 34,545
Creditors: Amounts falling due outside one year (22,629) (12,917) (10,250)
Provisions for liabilities and Charges
Deferred Taxation (96) - (95)
46,793 20,908 24,200
Capital and reserves
Called up share capital 5,501 3,888 3,934
Share premium 44,903 22,127 22,476
Capital redemption reserve 326 326 326
P&L brought forward (2,516) (1,969) (1,969)
P&L Movement for the year (1,421) (3,464) (567)
Shareholders Funds 46,793 20,908 24,200
Group Cash Flow
Consolidated Accounts for the six months to 31 August 2004 Unaudited Unaudited Audited
Half Year Half Year Year Ended
31-Aug-04 31-Aug-03 28-Feb-04
£'000 £'000 £'000
Net Cash (outflow)/inflow from Operating activities (94) 162 819
Returns On investment and servicing of finance
Net Interest Paid (519) (1,003) (3,703)
(519) (1,003) (3,703)
Taxation
Corporation Tax Paid (122) - (156)
(122) - (156)
Capital Expenditure and Financial Investment
Payments to acquire Intangible fixed assets (514) (32)
Payments to acquire Tangible fixed assets (893) (15) (1,165)
Receipts from sales of tangible fixed assets - 526
(893) (529) (671)
Equity dividends paid (472) - (236)
(472) - (236)
Acquisitions and disposals
Purchase of subsidiary undertaking (27,366) - (1,271)
Costs of acquisition (1,858) -
Net overdraft acquired with subsidiary undertaking - - (34)
(29,224) - (1,305)
Net cashflow before Financing (31,324) (1,370) (5,252)
Financing
Issue of ordinary share capital 20,989 27,140 25,362
-
Costs of placing and flotation (1,130) (2,173) -
Repayment of redemption premia - (3,434) -
New Long Term loans 13,000 - -
Repayment of Long Term Loans (941) (15,111) (17,507)
31,918 6,422 7,855
Increase in cash 594 5,052 2,603
Group Cash Flow
Consolidated Accounts for the six months to 31 August 2004 Unaudited Unaudited Audited
Half Year Half Year Year Ended
31-Aug-04 31-Aug-03 28-Feb-04
£'000 £'000 £'000
Operating (loss)/Profit (641) 576 3,466
Depreciation 397 246 225
Amortisation of Intangible assets 973 715 1,231
(Increase)/Decrease in debtors 725 (1,341) (4,536)
Decrease/(Increase) in stocks (1,276) 645 210
(Decrease)/Increase in creditors and provisions (272) (679) 223
Net Cashflow from Operating Activities (94) 162 819
Analysis of Net Debt At At
01-Mar Cash Exchange 31-Aug
2004 Flow Differences 2004
£'000 £'000 £'000 £'000
Cash at bank and in hand 2,044 594 - 2,638
2,044 594 - 2,638
Term loans (11,607) (12,059) (320) (23,986)
(9,563) (11,465) (320) (21,348)
Notes to the Interim Report
1) Basis of preparation
The interim financial information for the six months ended 31 August 2004 has
not been audited and does not constitute statutory accounts within the meaning
of Section 240 of the Companies Act 1985. It has been prepared on the basis of
the accounting policies set out in the Group's 2004 statutory accounts. The
information for the full preceding year is based on the statutory accounts for
the financial year ended 28 February 2004. These accounts, upon which the
auditors issued an unqualified opinion, have been delivered to the Registrar of
Companies.
2) Segmental analysis
Unaudited Unaudited Audited
Half Year Half Year Year Ended
31-Aug-04 31-Aug-03 28-Feb-04
£'000 £'000 £'000
Turnover by destination
North America 3,343 2,197 5,645
South America 603 233 528
Europe 1,664 2,108 4,257
Middle East 1,584 1,337 2,964
Asia Pacific 481 595 1,211
Former Soviet Union 481 606 582
China 1,153 - 983
Rest of World 402 298 1,354
9,711 7,374 17,524
3) Taxation
A tax credit arises on the first half loss and is expected to reverse in the
second half on the basis of the anticipated full year results.
4) Dividends
An interim dividend of 0.65p per share (2003: 0.6p) has been declared and will
be paid on 15 December 2004 to members on the shareholders register at the
close of business on 12 November 2004.
5) Earnings per share
Basic and diluted earnings per share
The Basic loss per share has been calculated by dividing the loss for the period
after exceptional costs and taxation credit by the weighted average number of
shares in existence for the period.
Shares held by the Employee Benefit Trust, including shares over which options
have been granted to Directors and staff have been excluded from the weighted
average number of shares for the purposes of calculation of the Basic EPS.
Unaudited Unaudited Audited
Half Year Half Year Year Ended
31-Aug-04 31-Aug-03 28-Feb-04
£'000 £'000 £'000
Basic and diluted EPS
Net earnings/(loss) (1,063) (3,231) 149
Weighted average number of 42,775 29,445 39,166
shares - basic
Basic and diluted loss per share (2.5)p (11.0)p 0.4p
The loss and weighted average number of ordinary shares for the purpose of
calculating the diluted earnings per ordinary share are identical to those used
for the basic earnings per ordinary share, as the exercise of share options
would have the effect of reducing the loss per ordinary share and is therefore
not dilutive.
Report on the interim results:
INDEPENDENT REVIEW REPORT TO SONDEX PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 August 2004 which comprises the Group Profit and Loss
Account, Group Balance Sheet, Group Cash Flow Statement, and the related notes 1
to 5. We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements of material
inconsistencies with the financial information.
This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by the law, we do not
accept or assume responsibility to anyone other than the company, for our work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The Interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data, and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied, unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly we do not express an audit
opinion on the financial information.
Review Conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 August 2004.
Ernst & Young LLP
Reading
4 November 2004
Members of the public may obtain copies of the Interim Report and Listing
Particulars from the companies registered office:
Sondex plc
Ford Lane
Bramshill
Hook
Hampshire.
RG27 0RH
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